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Two Things You Probably Don’t Know About “Plan B”

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As our new paper explains, key aspects of the “Plan B” tax bill that House Republicans will bring to the floor today — which would extend President Bush’s tax cuts on incomes up to $1 million and certain other tax cuts — aren’t widely understood. The graphs here highlight two of them.

People at the top would be better off under Plan B than under the Senate-passed bill to extend some tax cuts, but all other income groups would be worse off. People at the top would be better off not only because Plan B extends the Bush tax cuts up to a higher income threshold than the Senate bill ($1 million versus $250,000), but also because it extends a 2010 cut in the estate tax that benefits only the heirs of the wealthiest 3 in 1,000 people who die. (The Senate bill would return the estate tax, which phased down significantly between 2001 and 2009, to its already generous 2009 level.)

Further, Plan B would not allow limits on certain exemptions and deductions for high-income households, which the Bush tax cuts phased out, from returning in January as scheduled.

All told, millionaires’ after-tax incomes would be 2.9 percent higher on average under Plan B than the Senate-passed bill, according to the Tax Policy Center. That means millionaires would be $61,800 better off under Plan B than the Senate bill.

The main reason why all other income groups would be worse off under Plan B is that the Senate-passed bill extends the 2009 improvements to tax credits for working families and students, while Plan B ends them.

Plan B’s failure to extend the improvements in the Child Tax Credit and Earned Income Tax Credit for working families, as well as the American Opportunity Tax Credit to help pay college costs for low- and middle-income families, would affect 25 million families with incomes below $250,000 and throw more than 1.5 million working people (including 800,000 children) into poverty.

Most of the benefit of Plan B’s increase in the threshold from $250,000 to $1 million would go to people above $1 million. That’s mostly because they are the only people who would get tax cuts on the full amount of the threshold increase.

Further, as noted, Plan B blocks a major limit on tax expenditures for high-income households from returning on January 1st, and households above $1 million gain the most from abolishing this limit.